1. Executive Summary

This document provides a detailed summary of the research methodology and major findings of the Economic Analysis project. For those who are interested in more detail on the variety of economic considerations incorporated into the analysis, the 300 report includes a 60 page Appendix of tables and supporting documentation. Readers wanting more information are also directed to the Lake Champlain draft Final Plan "Opportunities for Action" (referred to here as the "Plan") and the Plan's "Background Technical Information" report.

This summary begins with an introduction to the Lake Champlain planning process, followed by a discussion of the background benefit and cost data necessary to an accurate analysis of possible future benefits and costs related to draft Final Plan implementation. The next section is a detailed discussion of phosphorus control, with the measures to control phosphorus being a major component, and cost, of the Plan. The non-phosphorus actions are briefly discussed, followed by the major results from the IMPLAN analysis of the economic implications of Plan implementation for local economies in Vermont and New York. The remainder of the summary provides an overview of economic implications of high priority actions within the Plan, in an attempt to put the economic data in the context of local economies and recreational use of Lake Champlain. The summary concludes with a section on the cost of no action, and a glossary of economic terms and concepts.

The IMPLAN model is an economic tool for characterizing how a given economic activity actually impacts local economies at the county level. IMPLAN attempts to accurately model a county's economy by accounting only for funds that remain in the county as employee compensation or other direct payments at local businesses and industries. It also discounts governmental spending as less productive in local economies than private sector spending. The IMPLAN analysis carried out for this research found that Plan-related spending in the New York and Vermont Lake Champlain basin counties would equal or slightly exceed the actual economic benefit in those counties. Furthermore, if federal funds are available to fund 50% of the costs as is currently projected, then the local economic benefit would exceed state, local, private and non-profit spending on Plan-related activities.

1.1 Introduction

The Lake Champlain Management Conference (LCMC) was charged with creating a comprehensive plan for protecting and enhancing Lake Champlain and its watershed area. Since the beginning of its five year planning effort, the LCMC has been interested in integrating protection and enhancement of Lake Champlain with a vital economy for the future. The goal has been to promote economic strategies for the long-range economic future of the Region that are compatible with other goals contained in the Pollution Prevention, Control and Restoration draft Final Plan for Lake Champlain (i.e., "Opportunities for Action") and to tailor pollution prevention and control strategies for economic efficiency as well as environmental effectiveness. The Management Conference Vision Statement clearly relates those goals for the future of Lake Champlain by stating that the Plan:

...supports multiple uses -- including commerce, a healthy drinking water supply, fish and wildlife habitat, and recreation such as swimming, fishing, and boating. These diverse uses will be balanced to minimize stresses on any part of the Lake system. The Management Conference recognizes that maintaining a vital economy which values the preservation of the agriculture sector is an integral part of the balanced management of Lake Champlain....

In its deliberations and decision making, the LCMC evaluated each recommendation in the draft Final Plan on a wide variety of criteria, including the degree of public support, the reliability of possible funding sources, and the cost effectiveness of each element in addressing a particular Lake Champlain issue. It is in the realm of cost effectiveness, and the associated issue of the equitable distribution of costs, that this report provides information to the LCMC and the public.

This and prior research demonstrates the significant economic value of Lake Champlain as a tourism and recreation resource. In that respect, maintaining and improving the lake is important to a sustainable regional economy. While protecting Lake Champlain is among the major economic and social priorities of basin residents and communities, it is still only one among many priorities that include education, safety, health, jobs, etc. These research findings provide evidence substantiating the economic value to basin residents in protecting and restoring Lake Champlain. The economic analysis also provides decision makers and the public with the economic information necessary to develop a management program that is both cost effective and equitable.

It must be recognized that a full cost/benefit analysis requires that all probable economic costs and benefits of a given action be identified and quantified. That level of economic detail is currently unavailable for all the Plan elements. The goal for this work was to compile and analyze as much of the needed economic information as possible within the project time frame and budget. The study team sought to maximize the utility of this work by focusing on the recommendations that potentially pose the greatest costs, and offer the greatest benefits. In the process the study team created economic modeling tools that not only serve to illuminate costs, benefits, and cost efficiencies for the draft Final Plan, but that will prove useful during the Plan implementation process.

While the conciseness and finality of presenting a "bottom line" that would result from Plan implementation is very attractive, it is difficult if not impossible to account for many of the external influences on the economy of the Lake Champlain basin. For example, on the benefits side of the ledger, the weather, the Canadian exchange rate, and regional economic conditions all exert a strong external influence on the basin's tourism economy. On the costs side, it appears that increased federal funds may soon be available for nutrient management on farms as indicated by the 1996 Farm legislation. After a number of years of declining funding for farm programs, the local agricultural costs as modeled by this research may actually be reduced. Taking in the big picture, the overall value of Lake Champlain to the current quality of life, to future generations, and to increasing economic opportunities (e.g., attracting high tech industries) for Plattsburgh and Burlington are only a few of the economic considerations that are difficult to quantify and model.

1.2 Estimating Current Recreational Expenditures Related to Lake Champlain

In order to model the economic impact of projected water quality improvement resulting from implementation of "Opportunities for Action" a baseline for current Lake Champlain dependent economic expenditures had to be established. The study team took the conservative approach of estimating only water-based and Lake Champlain dependent recreational activity expenditures that occurred within three miles of Lake Champlain.

Water-based and Lake Champlain dependent recreational activity results in approximately $107 million in direct expenditures in the vicinity of Lake Champlain during the summer season. The study team based that estimate on two approximate measures of recreational activity and expenditure. The number of lake users was based on average attendance levels at approximately 500 recreation sites within three miles of the lake, while the average expenditures per user were based on reported expenditures in the Lake Champlain area by families and groups engaged in various recreational activities including boating, swimming, camping, fishing, etc. The expenditure data were derived primarily from surveys of visitors carried out in the Lake Champlain basin in 1992 and 1993.

In addition to lake related direct expenditures by visitors, the study team estimated that seasonal residents who have summer homes around the lake spent approximately $16 million in the area on food, entertainment, arts & crafts, and other non-durable items during 1994. Thus, the combined direct expenditures on Lake Champlain related tourism and recreation by both visitors and seasonal residents is estimated at $123 million. Approximately $77 million (63%) of the total expenditures occur in Vermont lake shore communities, and $46 million occurs in New York lake shore communities. This is believed to be a conservative estimate of Lake Champlain's current recreation value as it reflects only summer season use and is based on a 50% or less occupancy rate at public and commercial recreation sites within three miles of the lake.

The prime beneficiaries of Lake Champlain dependent economic activity are Chittenden and Grand Isle counties in Vermont, and Clinton and Essex counties in New York. As shown in Table 1-1, approximately $29 million of the Vermont lake related expenditures occur in Chittenden County and $21 million in Grand Isle County. In New York, Lake Champlain visitors and seasonal residents spend approximately $21 million in Clinton County and $21 million in Essex County. Those would also be the counties receiving the majority of possible increases in recreational expenditures should the Plan be successfully implemented.

The values displayed above reflect direct expenditures as determined by the study team. IMPLAN analysis was used to determine the total direct, indirect, and multiplier effects of those expenditures. The total value added by tourism expenditures along the lakeshore was estimated at $97 million in Vermont and $57 million in New York, for a total economic impact of Lake Champlain related tourism expenditures of $154 million in 1992. It should be noted that recreational and aesthetic uses of the lake are valued by year-around residents living near the lake. These values are not all captured in expenditures at public facilities. Therefore additional economic value of Lake Champlain could be determined through property value research and travel-cost studies.

Table 1-1: Summary of Lake Champlain Dependent Visitorand Seasonal Resident Expenditures, by County

1. Visitor expenditure data based on 1992 and 1993 dollars.
2. Seasonal resident expenditure data based on 1994 dollars.

Holmes & Associates and Anthony Artuso 1996.

1.3 Establishing the Costs of Plan Implementation

While the total estimated costs of the various Plan proposed actions are outlined in "Opportunities for Action," the study team was expected to respond to concerns about the geographic distribution of costs. The LCMC and the interested public desired information on the economic impact of Plan implementation in New York, Vermont, and even in specific counties along the lake if possible. In response, the study developed cost distributions for each action item among New York, Vermont, and the Federal government based on our knowledge and information about fiscal and economic conditions around the lake. The cost distribution between Vermont and New York -- referred to here as their share of the cost -- is based on their respective share of the total basin economy. Vermont is allocated 71% of the costs and New York 29%.

The estimated proportion of each Action that will be federally funded is based on considerable study of Vermont's fiscal experience by the staff at Economic & Policy Resources, Inc. For example, the federal share for the Toxics actions is estimated at 80%, the federal share for the Nuisance Aquatics actions is 50%, and the federal share for the actions for Managing Recreation is 10%. The cost distributions are clearly reported in the tables and the text, allowing the estimates to be easily up-dated as new information becomes available.